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Trade Structure and the Transmission of Economic Distress in the High-Income OECD Countries to Developing Asia

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  • Jongwanich, Juthathip

    (Asian Development Bank)

  • E. James, William

    (Asian Development Bank)

  • J. Minor, Peter

    (Asian Development Bank)

  • Greenbaum, Alexander

    (Asian Development Bank)

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    Abstract

    This paper examines the structure and direction of developing Asia’s trade over the past two decades. The impacts on developing Asia of the economic slowdown in 2009–2010 in high-income countries of the Organization for Economic Cooperation and Development (OECD), which includes the European Union (EU), Japan, and United States (US) are projected through a computable general equilibrium model (CGE) of world trade and production. In addition, the impacts of fiscal stimulus and the rise of protectionist sentiments within developing Asia are examined. The expansion of intraregional trade in Asia reflects the role of the People’s Republic of China (PRC) as an assembly point and its reliance on demand from outside the region, the EU and the US in particular. The trade channel is crucial in transmitting economic distress from the OECD countries to developing Asia. The projection shows that developing Asia will continue to suffer from demand decline in OECD countries, with the PRC and India being the most impacted. Though Southeast Asia faces reduced exports to the OECD countries, its exports are reduced significantly to other Asian exporters, demonstrating the indirect trade linkages that now exist in the global economy. Fiscal stimulus from the largest economies (including PRC, EU, Japan, and US) could help boost trade and gross domestic product growth in developing Asia but it is not projected to offset entirely the negative impact from the global economic downturn. Protectionism has a negative impact on the countries and regions that take that course. Southeast Asia would be the most impacted by protectionism. If Southeast Asian countries were to raise their applied tariffs to the maximum most-favored nation bound rates under the World Trade Organization, the impact would be negative on real gross domestic product. Heavy manufactures followed by light manufactures, electronics, and textiles are most impacted.

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    Bibliographic Info

    Paper provided by Asian Development Bank in its series ADB Economics Working Paper Series with number 161.

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    Length: 49 pages
    Date of creation: May 2009
    Date of revision:
    Handle: RePEc:ris:adbewp:0161

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    Related research

    Keywords: Trade; CGE model; Forecasting/Simulations; Developing Asia;

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    1. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 12(2-3), pages 231-254.
    2. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, Econometric Society, vol. 55(2), pages 251-76, March.
    3. Breusch, Trevor S & Wickens, Michael R, 1987. "Dynamic Specification, the Long Run and the Estimation of Transformed Regression Models," CEPR Discussion Papers, C.E.P.R. Discussion Papers 154, C.E.P.R. Discussion Papers.
    4. Mohamed Hedi Bchir & Sébastien Jean & David Laborde, 2006. "Binding Overhang and Tariff-Cutting Formulas," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 142(2), pages 207-232, July.
    5. Mats Furby, 2005. "Evaluating the Malaysian Export Processing Zones With special focus on the electronic industry," International Trade, EconWPA 0510004, EconWPA.
    6. Prema-chandra Athukorala, 2003. "Product Fragmentation and Trade Patterns in East Asia," Departmental Working Papers, The Australian National University, Arndt-Corden Department of Economics 2003-21, The Australian National University, Arndt-Corden Department of Economics.
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